This Company's Been on a Roll -- and It's a Bargain

Griffon Corp. has been on a roll since 2013. Earnings per share surged by more than 450% since then and dividends more than tripled. Even 2020's COVID-hit year didn't stop GFF from posting all-time record results. Continuous shareholders did well, but the past eight years' total return represented just a fraction of the true value created. That discrepancy came due to a price-to-earnings compression, which left GFF at a much lower than typical valuation. Griffon traditionally fetched about 21.7-times current earnings. As of July 4, 2021 the stock was available for just 13.3-times its fiscal 2021 estimate (the fiscal year ends Sept. 30, 2021). Griffon's three divisions are all contributing. Customers' renewed interest in upgrading and modernizing their homes has been especially good for GFFs two largest branches. Analysts have been slow to recognize just how well GFF has performed. Fiscal Q1 and Q2 estimates proved way too low. Griffon reported EPS that exceeded those projections by 75% and 60% respectively. Fiscal Q3 results are due for release in the period from July 28 through Aug. 2. Most analysts are looking for a down quarter year-over-year. I'm betting their pessimistic bias is going to be proved wrong once again. Value Line sees full fiscal year 2021 coming in at $1.91 vs. $1.62 even assuming Q3 EPS fall short of last year's number. That would still represent 17.9% annual growth on the heels of an all-time record year. What is GFF really worth? If the shares merely trend back towards a more typical, 20-times multiple GFF could be north of $38 by this October, and about $43 by the fall of 2022. Both goals appear realistic. At its peaks during 2015, 2017 and 2019, GFF commanded P/Es of 23.6-times to 31.2-times. Yahoo Finance takes a somewhat conservative view on GFF's year-ahead prospects. It calls the shares undervalued and sees it hitting $34 by this time next summer. Getting to that very modest goal would still deliver a greater than 34% total return. Better still, it could easily be exceeded. Yahoo Finance's target is based on just a 16.3-times final forward P/E. Quantitatively-oriented FastGraphs note Griffon's normalized P/E as 20.3x. Its end of FY 2022 price goal for GFF is thus $41.84. FastGraphs' lowest-end, 15-times earnings, goal price would still justify a move to almost $31, from $25.22 currently. Owning GFF shares outright provides unlimited upside plus a better-then-bank-CD 1.26% current yield. It's hard to imagine that GFF won't be substantially higher by early 2022. Option traders can benefit from selling Jan. 21, 2022 put options at strikes from $20 to $30. Worst-case, forced purchase prices would have ranged from just $19.10 to $23.50 based on GFF's July 2, 2021 close at $25.33. Covered call writers on GFF were able to collect $1.35 per share on July 2 for selling January 2022 $30 calls, even with the shares changing hands at a depressed price. That premium will be much higher if you wait for the next $2 - $5 rally to start hedging. Impatient types, or those with an aversion to risk, could short $30 strike price covered calls right away. Buying at $25.33 and having to sell at a net price of $31.35 would still provide a maximum $6.02 plus dividends gain per share over the coming 6.5 months. That's better than 24% in total return while reducing the risk of holding the shares by almost 7%. Maximum profits on these, or any other, option sales is always keeping 100% of all premium dollars received up front. In the examples shown that would equal from $90 to $650 per each 100-share, one-contract commitment. Griffon is a proven growth vehicle, which is currently on sale at a well below normal valuation. Buy some GFF shares, sell some Jan. 2022 puts or consider doing both.

This Company's Been on a Roll -- and It's a Bargain

Griffon Corp. is a left-to-right growth company that appears to have great potential for investors.

Columnist Conversation

Two Good Signs -- Especially for Small-Cap Investors

More Insider Buying in American Woodmark (AMWD)

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.